Weekly Market Report – 29.01.2018

Market Summary

Asia

The weak U.S. dollar caused problems for some Asian markets throughout the past week, but Chinese markets weren’t impacted and, with the exception of Thursday, had a strong week. The Hang Seng in Hong Kong continued to be the leader for the region, gaining 2.8%. The Hang Seng is nearly 11% higher in 2018, already. Mainland Chinese stocks also did well, with the Shanghai Composite gaining 2.1% for the week as growth in China continues to pick up. South Korea’s Kospi outperformed as it rose 2.2%, gaining in four consecutive sessions. Japan’s Nikkei bore the brunt of the weaker USD as it finished the week with a 0.7% loss. In Australia the S&P/ASX 200 managed a modest 0.7% gain as rising commodity prices have helped offset losses from Australian banks and utilities.

The upcoming week will likely see more of the same for Japan as long as the USD remains weak. Chinese markets, and especially the Hang Seng can be expected to outperform again, but could be derailed by a weak manufacturing PMI number early in the week. If the number is strong, however, expect the Hang Seng and Shanghai Composite to continue outperforming. Australia will likely continue to struggle, with commodity prices key to keeping the S&P/ASX 200 from sharp losses. South Korea’s Kospi is on a four session winning streak; so keep an eye on the index to continue rising.

Europe

European markets struggled throughout the week as the strong Euro and Pound are weighing on equity markets there. While they began and ended the week on strong notes, the mid-week action kept most indices from gains. The pan-European Stoxx Europe 600 was 0.1% lower for the week, but the CAC 40 in France managed a 0.1% gain as it rose sharply on Friday in response to solid earnings from LVMH. Germany’s DAX struggled mightily mid-week with the Euro strength and finished the week with a loss of 0.7%. London’s FTSE also struggled with the Pound moving to levels not seen since the Brexit, causing a loss of 0.8% for the FTSE on a weekly basis.

Continued U.S. dollar weakness is expected to keep pressure on European markets in the coming week. The ECB has been clear that it is not planning on doing anything to stop the rise in the Euro, and the Brexit talks are going well in the U.K., which will keep the Pound moving higher against the U.S. dollar as well. While the GBP/USD is still well off its pre-Brexit 1.5000 level, it is becoming increasingly possible that the pair will in fact trade back to pre-Brexit levels.

US

U.S. markets remained extremely strong during the week, helped by the weaker U.S. dollar and by solid corporate earnings so far this season. The Nasdaq led the way higher, gaining 2.3% on a weekly basis as investors are becoming interested in the growth areas of technology and health care again. The S&P 500 gained 2.2% for the week, and the Dow was 2.1% higher on a weekly basis. Markets ended the week on a very strong note following comments from President Trump that indicated he prefers a stronger U.S. dollar.

Despite the Friday rhetoric supporting a stronger U.S. dollar, markets are showing that they don’t believe, and that could keep the greenback in freefall during the coming week. That will almost certainly help U.S. equity markets continue climbing. Earnings season is also heating up, and given results so far we should continue to get solid results from U.S. companies, which will also continue to support higher valuations for equities. Expect the U.S. to continue leading most global equity markets.

Cryptocurrencies

The cryptocurrency market got off to a bad start last week, falling sharply Monday after South Korea introduced new regulations and taxes on cryptocurrency exchanges. By Tuesday the markets had found support and were recovering, and then stabilized Wednesday. Markets remained relatively quiet Thursday, but then fell again Friday after Japanese exchange Coincheck confirmed that roughly 500 million NEM coins worth $524 million had been stolen by hackers. Even though this sent markets lower, the losses were fairly modest, given that this is the largest ever theft of cryptocurrencies, even exceeding the 2014 Mt. Gox hack.

By the weekend the cryptocurrency markets were rebounding from Friday’s news. Given the muted response to the Coincheck hack it looks as if the cryptocurrency markets could be gaining momentum for another run higher. Bitcoin seems to have found a floor around the $11,000 level, and alt-coins are following Bitcoin higher rather than sinking in the face of its strength. This could mean we’re looking at a very profitable upcoming week for the cryptocurrency space.